Do You Need Cargo Insurance?

Posted by Marian
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You can never sail or ride without protection. This virtue goes the same with the need for cargo insurance. It is the law for all carriers to provide a minimum amount of insurance. However, carrier liability provides very limited cargo insurance coverage and in an unforeseen event such as natural disasters or in-transit accidents, shippers can be prepared and request full freight insurance to protect their shipments from loss, theft, or damage.

Protect Your Cargo – Get Insured!

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The pandemic has taught everyone to be warier of security and protection. Mishaps happen in a heartbeat so it is best to always protect your cargo. Cargo Insurance is designed specifically to address your needs and protect the value of your cargo and cover legal liability. Cargo insurance claims are handled by a dedicated, professional team ensuring you have peace of mind when transporting your goods both domestically and internationally.

As your supply chain partner offering a full suite of logistics solutions including air freight, ocean freight, and warehouse solutions, we offer all-risk cargo insurance coverage that will ensure your freight is fully covered should there be an issue throughout the transportation of your freight shipments. In the case of loss or damage (from what are considered as acts of god or other), our comprehensive cargo insurance will cover the complete costs of your valuable cargo.

The type of insurance you choose may play a critical role in your shipping process now and in the future and ensure you have peace of mind for any physical loss of your cargo. Carrier liability provides limited insurance coverage for your goods. Natural disasters, accidents, and more can damage your cargo. Insuring your goods for loss, theft, or damage whilst in transit will ensure you have cargo protection for your shipments.

What is Cargo Insurance?

If you don’t have cargo insurance then you’re an accident waiting to happen. Cargo insurance is extremely important for your business especially if you regularly ship products both locally and internationally.

Cargo insurance is a must-have for all carriers. Just like car insurance, there is a minimum amount of insurance required for carrier liability. This is a rather limited version just the same as remedial insurance for vehicles and only covers things like vehicle accidents or natural disasters. That said shippers can request cargo insurance as an addition to the carrier liability in order to protect their goods from theft, damage, or loss in transit.

Cargo Insurance Types

If you value your health and life, then you protect yourself with insurance. Cargo Insurance functions very similarly to life insurance or health insurance in so far as there are many options that come with different limitations and coverage.

Land Cargo Insurance

Land cargo insurance covers your shipment while it is transported on land. Most of the time if your cargo is on a truck you would want land cargo insurance. If your cargo is transported or managed by a utility vehicle you want this as well. Be advised that this insurance is only for local shipments so it would only be applicable within the United States. The coverage gives you protection against theft, damage from collision, and similar risks.

Marine or Ocean Cargo Insurance

Marine cargo insurance covers your shipment for the sea leg of its journey. This applies to sea or air freight.  This particular insurance is international. This gives you coverage from bad weather, piracy, damage from loading or unloading, and similar risks.

Marine insurance policies can be permanent or renewable. So, if you do not ship regularly you can choose a renewable policy and pay for one-time voyages. These are going to be relatively inexpensive and a perfect solution for infrequent International shippers. Frequent shippers will want a permanent policy for the duration of their shipments.

Importance of Having a Cargo Insurance

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Cargo insurance is important because it provides a sort of stop-gap that goes above and beyond the minimum requirements for carrier liability. Like all types of insurance, it is always better to have it and not need it than to need it and not have it. If something should go wrong, a shipment onboard a vessel should sink or theft should occur at the port, your company could suffer serious financial losses.

More to the point, your company could be responsible for its portion of losses along the chain of shipment. The maritime principle of General average stipulates that all losses from damages that are caused by an unforeseen problem are divided among the owners of the surviving merchandise on that vessel.

This means that if your shipment is on board a vessel with shipments from 10 other companies, even if your cargo was undamaged after an unforeseen problem, you are still held financially responsible for the compensation to the other owners whose cargo was damaged or lost.

Just imagine if 9 out of 10 other companies on board that vessel sustained damages or losses, you might be the only company to come out ahead but now you have to pay them. No doubt, having Insurance could protect you in these instances. In any case, having insurance protects you and your company against devastating losses when the worst scenarios happen.

Cargo Insurance Types

Cargo Insurance typically includes shipment transportation whether that is by water, by air, by rail, or by road.  The extent to which your shipment is covered is going to vary based on the details of the policy you have. With that being said, it is crucial that you review the fine print of your policy before you sign on the dotted line.

All Risk Coverage

All risk coverage is the broadest coverage you will find with a wide range of protection. Generally speaking, this coverage will apply to physical losses and damages which are the result of an external cause. Bear in mind that this typically applies to approved or general goods. There are exclusions of course.

Damage to your cargo because of negligence is not covered most of the time. An example of this would be shipping something that is time-sensitive even though you know there is a congestion problem at that port.

Inherent Vice is typically excluded. This refers to the deterioration of your cargo simply because of the cargo itself. Wine and beer, for example, qualify as an inherent vice because they can be affected by temperature changes or movements during transit.

Other exclusions include cargo abandonment, war, strikes, riots, civil commotions, Customs rejection, loss of use, and failure to pay. Other external factors that are not covered could include pollution, infestation, earthquakes, etc.

Named Perils Coverage

Within this particular coverage, you only receive losses caused by the Perils that are named in the policy. This might include things like vessel collision, vessel sinking, bad weather, earthquake, theft, derailment, or not delivery. Remember that only the things listed are covered so these types of policies are more limited.

What is General Average?

One of the great advantages of having cargo insurance protecting your shipments is that cargo insurance also covers General Average. If your shipment is included as part of a General Average declaration the insurance policy will cover the general average bond in order to have your cargo released.  This frees your company from having to make any additional cash deposits.

General Averaging is a concept that is based on a maritime tradition and is governed by a set of rules known as the York/ Antwerp Rules, revised in 1990. Participation is as per Terms and Conditions on the Ocean Contract of Carriage. General Average is declared by the vessel owner. A General Average Adjuster is chosen to administrate the process.

Their initial job is to ensure all parties participate and a deposit is received from all cargo owners. The deposits are a proportional value of the invoice value that is roughly estimated to cover the cargo owner’s part of the General Average. As the full process can take a very long time to resolve, participation and funds must be ensured from the beginning.

For example, If one client, whose cargo is in an LCL container, has not submitted their General Average forms, then the whole container is detained. If the client fails to participate in General Average, their cargo can be considered abandoned and will result in the client having no financial recourse.

A General Average notice, with instructions and forms, is given to the carrier, who passes it to the cargo owner or via their freight forwarder. One of the great features of having cargo insurance protecting your shipments is that cargo insurance also covers General Average.

If your shipment is included as part of a General Average declaration the insurance policy will cover the general average bond in order to have your cargo released.  This frees your company from having to make any additional cash deposits.

What are the Advantages of Having Cargo Insurance?

Cargo Insurance gives you coverage for the duration of your shipment’s journey. You can protect your shipment against damage or loss, the result of external factors. With cargo insurance, you can even protect your shipment while it is on land but still en route to the buyer.

If a shipment is lost at sea, for example, general carrier liability will be insufficient to recompense for the losses. If a shipment is being transported with a container vessel and it sinks, carrier liability will be insufficient and your company could go under.

If your truck on the highway gets involved in the accident, your company is responsible for its share of the losses which could negatively impact the bottom line for your operation. But with cargo Insurance, none of this will happen in the event that the worst should take place.

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